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Client Ready - Legislative Insights into the BCRA

Posted by Bobby Schmidt on Jun 26, 2017 10:55:53 AM

In AHCA, ACA, Obamacare, Client Ready, FSA, HSA, HRA, Legislative Insights, BCRA

Last week, the Senate introduced the highly anticipated Better Care Reconciliation Act (BCRA).  This legislation evolved from the bill that passed the House in May, the American Health Care Act (AHCA).  This draft isn’t quite as far reaching as the AHCA was in regards to cutting entitlements. Instead of completely dismantling former President Barack Obama’s landmark legislation, the BCRA would repeal the former’s mandates and funding sources (i.e. taxes), and focus on expanding health insurance options for those that felt that their choices were limited.

Or if you don't like reading lots of text, check out the Code SixFour Infographic breakdown here.

In February, we laid out likely scenarios that the GOP would present in an effort to repeal and replace the Patient Protection and Affordable Care Act (ACA).  Our predictions summarized the key points within “The Patient Freedom Act,” sponsored in January by Senators Susan Collins (R-Maine) and Bill Cassidy (R-Louisiana), in conjunction with the tenants of the “Better Way” vision put forth by Rep. Paul Ryan (R-Wisconsin). Both of these legislative proposals, along with similar work developed by Tom Price, are reflected in many aspects of the BCRA.  In March, we compared the AHCA to the ACA, and the potential implications to employers. 

Below is a summary of the central ideas of the BCRA in comparison to the ACA, and how it is different from the AHCA. While positioned as a “Repeal and Replace” effort, the proposed law does leave certain aspects of the Affordable Care Act untouched. We capture the summary in each area below under the headings Repealed, Replaced, and Remains.


Say goodbye to the mandates

  • Repealed: Individuals will no longer be required to buy an insurance policy, and employers (with over 50 full-time equivalent employees) are no longer mandated to offer affordable coverage, that meets minimum value.
  • Replaced: Individuals who have a break of continuous coverage for over 63 days or more will have a six month waiting period before beginning new coverage.  
  • Remains: Nothing remains of these major components to the ACA - providing significant relief to employers in their tracking and administration of the Section 4980H requirements.
  • Comparison to the AHCA: The “Continuous Coverage” requirement of the AHCA allowed for individuals who forego health insurance for greater than 63 days to be charged up to a 30% increase to their premiums, for a period of up to 12 months.   No waiting period was assigned.

Product enhancements, market stabilization, and consumer coverage protections.  

  • Repealed: Small Group and Individual market products will sunset the actuarial-value defined “metal tiers”, effective December 31, 2019. This would mark the end of the Bronze, Silver, Gold, and Platinum plan design designations.
  • Replaced:  Age rated premium caps for individual and small group premiums will be increased from 3:1 to 5:1.  A $100 billion fund will be created and dispersed over a decade to help states stabilize insurance markets, maintain preventative services, and pay for those in high-risk pools.  The Medical Loss Ratio provision of the ACA, which states that insurers must spend 80-85% of premiums dollars received on medical care for policyholders, will now be left up to the states to determine.  Essential Health Benefits, as defined in the ACA, would be defined by the states.
  • Remains:  Caps on deductibles and out of pocket limits have been left intact.  Pre-existing conditions still have to be covered by insurers. Dependents can still remain on their parents’ policy until the age of 26.  Caps and guidance on insurer premium rating factors - such geographic boundaries (community rating areas), age band structures, and tobacco use permitted adjustments, have not been changed.
  • Comparison to the AHCA: The Medical Loss Ratio provision was not left to the states in the AHCA.

Nearly all taxes from the ACA will be repealed.

  • Comparison to the AHCA:  The BCRA and AHCA are essentially the same in this regard.

Favorable Treatment to Account Based Health Plans

    • Repealed:  The annual FSA contribution limit of $2,500 is removed.
    • Replaced:  HSA early distribution penalty tax will be lowered from 20% to 10% (pre-ACA rate).  Furthermore, the maximum contribution limit for HSAs will be increased to match the deductible and out-of-pocket limits.  This means that the basic limit to contribute tax-free will be $6,550 / year for individuals and $13,100 for families.  Spouses will now be allowed to contribute catch-up contributions to HSAs. Over-the-counter medications can also be purchased pre-tax with HSA dollars.
    • Remains: There was little in the ACA to support and strengthen Account Based Health Plans (ABHP). The GOP has taken the opportunity with the AHCA to promote and strengthen these options - a welcome advantage for employers offering these plan structures.
  • Comparison to the AHCA: The BCRA and AHCA are essentially the same in this regard.

Entitlement Reform for Medicaid.  

  • Repealed:  Medicaid expansion will continue (at a lower rate) until 2023.  Minimum Essential Coverage (MEC) is no longer required for these plans, and states have the ability to determine what benefits will be offered - they are not required to cover Essential Health Benefits.
  • Replaced: States who opted to expand Medicaid would receive funding on a per-capita basis for beneficiaries through 2023.  Afterwards, federal contribution is based on general state match percentage.
  • Remains:  Enrollees would continue benefit as long as it is continuous (no break in coverage greater than one month).
  • Comparison to the AHCA: The AHCA went much farther in cutting funds to Medicaid. The AHCA freezes medicaid expansion in 2023, rather than allowing continued funding on per-capita basis.  Under AHCA, states who opted to expand Medicaid would continue to receive amounts which would grow by either the medical component of the Consumer Price Index or medical CPI plus 1 percentage point.

Modifications to Advanced Premium Tax Credits (“Subsidies”)

  • Repealed: The current formula and mechanic for Advanced Premium Tax Credits (APTC) is set to expire on December 31st, 2019.
  • Replaced:  The new formula modification combines means-tested and age-adjusted tax credits into a single, combined calculation.  The maximum of 400% FPL will be lowered to 350%.  It is important to note that ACA subsidies are calculated based on an actuarial value of 70% of plan costs (currently defined as a “Silver” metal tier).  The BCRA subsidies are calculated based on an actuarial value of 58% (currently defined as “Bronze” metal tier).

 

BCRA, AHCA, & ACA Comparison Example                         

 

Individual or Oldest Spouse in Joint Filing

45

Family Size

3

Joint Income

$56,000 (274% of FPL)

Premium Percentage Cap Under BCRA 

8.19%

Premium Percentage Cap Under AHCA 

8.19%

Premium Percentage Cap Under ACA

8.92%

Annual Premium Cost for 2nd Lowest Silver*

$11,107.92

Annual Premium Cost for 2nd Lowest Bronze**

$6,664.80

Annual Premium Cap Under BCRA

$4,586.40

Annual Premium Cap Under AHCA

$4,586.40

Annual Premium Cap Under ACA

$4,995.20

Amount of Advanced Premium Tax Credit Under BCRA

$2,078.40

Amount of Advanced Premium Tax Credit Under AHCA

$6,521.52

Amount of Advanced Premium Tax Credit Under ACA

$6,112.72

  *Estimated assuming $925.66 per month for second lowest silver plan; this varies by state/geography

  **Estimated assuming $555.40 per month for second lowest bronze plan; this varies by state/geography

View the Kaiser Interactive Map: Premiums and Tax Credits under the ACA vs. BCRA (and AHCA)

  • Remains: By incorporating income, the BCRA tax credits are more closely aligned to the ACA than the AHCA proposal.  The new structure remains an advanceable payment, that will be audited against tax returns at the end of each year.
  • Comparison to the AHCA: The AHCA restructured the entire ACA plan premium cost assistance schedule (determined by income, FPL, and number of dependents in the household), by shifting to flat tax credits which were solely determined by age (as shown below).

 

Age

Tax Credit per Year

Up to Age 29

$2,000

Age 30-39

$2,500

Age 40-49

$3,000

Age 50-59

$3,500

Over Age 59

$4,000

These credits grow over time (per year) at inflation (CPI) plus 1%.  Credits are available in full to individuals earning up to $75,000 per year, or $150,000 for those filing jointly, and are reduced by $100 for every $1,000 in additional income beyond these levels.

AHCA Flat Tax Credit

 

Individual or Oldest Spouse in Joint Filing

52

Family Size

4

Joint Income

$160,000

Tax Credit

$2,500

 


 Reporting and Administration

  • Repealed: Reconciliation rules limit the ability of Congress to repeal current reporting requirements. The proposed regulations call for the Secretary of the Treasury to “phase out” old reporting, as new reporting takes effect.
  • Replaced: Eligibility for employer sponsored insurance will remain a determining factor in tax credit eligibility. Therefore, it is possible the IRS will still require forms 1094/1095 - though with modifications to the form and format.  However, according to the Ways And Means Chairman Rep. Kevin Brady (R-Texas) they are calling for a “simplified reporting of an offer of coverage on the W-2 by employers.” This is not a legislative mandate - rather, instructions to relevant Department heads.
  • Remains: At this point, the requirement for plan sponsors and issuers to furnish a Summary of Benefits and Coverage (SBC) appears to remains in place.  
  • Comparison to the AHCA: The BCRA and AHCA are essentially the same in this regard.

Final & Summary Thoughts - And Key Takeaways for Brokers

  • Does Code SixFour believe it will pass, in current form?
    • No, but it may after some negotiation.  At least four senators have already gone on record to state that they will not vote for this bill in it’s current form, but are “open to discussion.”  Moderate members of the GOP are not enthusiastically backing the BCRA due to the immense cuts to Medicaid, while conservatives elements don’t believe it goes far enough to choke out entitlements.  The upcoming Congressional Budget Office score will reveal the expected impact on Medicaid, the number of insured, and premium costs.  The potential for the AHCA to move past the house was considered “dicey” at best, so anything is possible.

 

  • What will my clients ask about?
    • Expect some confusion from small group clients, as they try to compare and contrast different plans in the future without the “metal tier” system, and how their state decides to handle the definition of Essential Benefits.
    • Changes to reporting requirements will be likely - but are very far out. Clients should be sure to continue their current strategies for compliance with 1094/1095 administration.
    • We predict a growing interest in Account Based Health Plans, such as HSAs, FSAs, and HRAs, if the changes proposed in this legislation come to pass.
    • We would love for Congress to make a decision on if the Cadillac Tax will ever come into effect, or remain the future boogeyman for high cost plans.

Download the infographic breakdown regarding this legislation here.

Code SixFour empowers benefits brokers to automate their consulting through powerful technology and dynamic content.  Build a cloud-based plan library, create customized benefits booklets, analyze "what-if-scenario" modeling, and deploy a variety of other reports and insights. This type of dynamic software is essential in today’s market - where changes to plans, pricing, and regulations in the next twelve months, are all extremely likely.

 

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